Settlement members hold multi-currency accounts at CLS Bank. Banks, funds, corporates, and other firms that are not settlement members use the service through a settlement member. CLS Bank holds accounts at the central bank of each currency, and settlement members make their pay-ins and pay-outs through those accounts12.

CLS Bank settles gross, instruction by instruction, but members pay in only the net amount in each currency. For example, when Bank A and Bank B send instructions for a yen-dollar trade, CLS Bank settles the two currency payments simultaneously on its books, and the settled payments are final and irrevocable1.

It is regulated and supervised by the US Federal Reserve System in New York. The CLS Oversight Committee, coordinated by the Federal Reserve Bank of New York and joined by the major central banks and the central banks of the currencies CLS settles, also jointly oversees it3.

Notes

  1. CLS Group, "CLSSettlement" (February 2022), "How it works – the settlement cycle". ↩ ↩2

  2. Bank of Japan, "頑健な決済システムの構築に向けて" (Toward Building Robust Payment and Settlement Systems, in Japanese) (speech by Governor Masaaki Shirakawa, November 13, 2009), the paragraph on the mechanism that prevents FX settlement losses. ↩

  3. Deutsche Bundesbank, "Continuous Linked Settlement", sections "Introduction" and "Implementation". ↩